CANARA BANK vs M/s. Chaithanya Associates on 4 August 2018

FINAL ORDER

This Original Application is filed on 28.03.2014 under Section 19(1) of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 for recovery of a sum of Rs.30,02,746.50 [Rupees Thirty Lakhs Two Thousand Seven Hundred Forty Six and paise Fifty only] together with interest at the rate of 19.95% with monthly rests from 01.03.2014 till the date of recovery by sale of ‘A’ & ‘B’ schedule properties and from the defendants 1 to 3 jointly and severally and also by sale of all their assets both movable and immovable and from their person jointly and severally. BRIEF FACTS OF THE CASE:

The applicant is a body corporate constituted under the Banking Companies (Acquisition and Transfer of Undertakings) Act 1970 with their Head Office at 112/JC Road, Bangalore – 2 and having branch among other places at Vazhuthacaud, in Thiruvananthapuram District and is represented by Sri. Krishnakumar V, Manager, the Principal Officer duly authorized and empowered to represent the applicant bank in this proceedings.

It is the case of the applicant that the 1st defendant is a proprietorship concern and defendants 2 and 3 and guarantors for the loan availed by the 1st defendant from the applicant bank. The 1st defendant is engaged in the business of wholesale distribution of Aluminium foils, tissue papers, packing materials and disposable garbage baskets and bags. The 1st defendant submitted an application on 07.03.2011 seeking financial assistance and the loan was sanctioned by the applicant bank to a limit of Rs.25Lakhs as per sanction memorandum dated 31.03.2011. The 1st defendant offered a collateral security by way of equitable mortgage of an extent of 13.750 cents of land and building having a value of Rs.34.39 Lakhs owned by the 3rd defendant and the credit facility is also secured by hypothecation of stock and debtors.

3. The 1st defendant executed Demand Promisory note for Rs.25 Lakhs, Common hypothecation agreement, Guarantee covering letter and guarantee agreement in favour of the applicant bank on 31.03.2011. The 2nd & 3rd defendant also executed a guarantee covering letter and guarantee agreement on 31.03.2011 in favour of the applicant bank. The 1st defendant executed a Letter of Partnership dated 31.03.2011 in favour of the applicant bank requesting to grant overdraft facility. Certificate of loan papers obtained dated 31.03.2011.

4. The 1st defendant vide letter of undertaking dated 31.03.2011 undertook to pay the interest as per the RBI guidelines and the defendants 1 to 3 agreed to repay the loan amount with interest with a minimum of 13% per annum compounded monthly in accordance with the terms and conditions of loan sanction letter and loan papers executed.

5. The credit facility advanced to the 1st defendant is further secured by mortgage of the property having an extent of 13.500 cents comprised in Sy.No.734/1-2-2, 734/1 of Thalicod Village on 30.03.2011 owned by the 3rd defendant and the 3rd defedant executed a letter evidencing creation of an equitable mortgage by deposit of title deeds of the property on 31.03.2011 in favour of the applicant bank along with the Sale deed No.70 of 2011 dated 12.01.2011 of Vithura Sub Registry Office, Trivandrum, Land Tax receipt dated 14.02.2011 for having paid the land tax for the mortgaged property and also the possession certificate dated 17.02.2011 issued to the 3rd defendant by the Village Officer, Thalicode for having possession of the property mortgaged to the applicant bank, location certificate dated 17.02.2011, a sketch of the properties mortgaged issued by the Village Officer and the encumbrance certificate dated 21.01.2011.

It is submitted that based on the request of the 1st defendant, the applicant bank had sanctioned the enhancement of the credit limit from Rs.25 Lakhs to Rs.27 Lakhs on 09.11.2011 and the 1st defendant executed a letter of enhancement, supplemental agreement dated 09.11.2011 and a demand promisory note for Rs.2 Lakhs on the same day.

It is further submitted that the 1st defendant on 31.03.2011 again requested a temporary OD facility of Rs.2Lakhs for a period of one month and as per the request letter of the 1st defendant the applicant bank sanctioned a temporary loan of Rs.2 Lakhs and the defendant availed the loan by executing a demand promissory note dated 31.01.2012 in favour of the applicant bank.

Again on 30.05.2012 the defendant made a request for additional financial facility of Rs.2.5Lakhs for meeting the funds for supply of cement to the work undertaken. The applicant bank sanctioned a TOD of Rs.2.5Lakhs and the 1st defendant availed the same by executing a demand promissory note dated 31.05.2012 in favour of the applicant bank.

It is further submitted that the 1st defendant again approached the applicant bank for enhancing the credit limit of Rs.25 Lakshs to Rs.27,50,000/- for meeting business requirement and the same was sanctioned by the applicant bank and the 1st defendant executed a link letter in respect of the enhancement. Apart from the link letter the 1st defendant also executed a demand promissory note dated 05.09.2012 for the enhanced limit of Rs.2,50,000/- and a supplemental agreement dated 05.09.2012.

After availing the credit facilites, the defendant 1 to 3 have not taken any steps to repay the loan as undertaken and had violated the terms and conditions in the covenants of the loan documents. In spite of several requests made by the applicant bank, the defendants neither cared to regularize the loan account nor to discharge the loan liability. However, the defendant promised to repay the entire liability immediately vide letter dated 03.04.2012 requesting 15 days time for renewal of CC limit. The 1st defendant again sent a communication letter requesting the bank for submitting the renewal papers before 20.04.2013 and the letter was received by the bank on 08.04.2013.

Though a temporary OD facility of Rs.2,50,000/- was granted for period of 2 months, the defendant has not repaid the amount till 05.11.2012. The 1st defendant executed an Acknowledgment of debt and security on 31.01.2012 confirming and acknowledging that a sum of Rs.27,28,422/- exclusive of interest @ 15.75% per annum compounded monthly is due and outstanding for him. The applicant bank again made a request to the defendants to take immediate steps to regularize the limit within 10 days failing which the bank will be taking legal steps to recovery the balance amount outstanding.

Since the 1st defendant was not adhering to the terms and conditions to the grant of loan and the applicant bank vide letter dated 24.04.2013 intimated the defendants to submit the audited financial statement as on 31.03.2012 and other required financial papers for renewal of the limits, within 10 days failing which the bank will be recalling the account and will be taking recovery steps for recovery of the entire liability.

Despite the repeated requests and letters sent by the applicant bank the defendants did not make any efforts to regularize the account or to discharge the entire liability and hence the bank was constrained to issue a recall notice dated 17.08.2013 to the defendants 1 to 3 requesting to clear the entire liability amounting to Rs.27,17,615.50 as on 17.08.2013 within 7 days from the date of notice. Even after the issuance of the recall notice the defendants failed to repay the loan liability and hence the bank classified the debt as Non Performing Asset and thereafter the bank initiated steps under the SARFAESI Act, 2002 and issued notice under Section 13(2) on 06.09.2013 calling upon the defendants to pay the outstanding amount of Rs.27,43,078.50 along with future interest and incidental expenses and costs.

It is submitted that even after the receipt of the 13(2) notice, the defendants failed to repay the amount hence the bank proceeded further and issued the possession notice of under section 13(4) of the Act.

As per the statement of accounts for the period of 31.03.2011 to 28.02.2014 an amount of Rs.30,21,806.50 is due from the defendants along with interest @19.95% per annum compounded quarterly to the applicant bank. The penal interest debited in the account amounts to Rs.60,316/- and capitalised portion of the penal interest is Rs.19,060/-. After deducting the capitalised portion of the penal interest, an amount of Rs.30,02,746.50 is due from the defendants 1 to 3. Hence the applicant has constrained to file this original application for recovery of the said amount.

After filing of the OA, the applicant bank has taken out the summons as directed by the Tribunal and has filed the proof of service on 11.06.2014. The summons issued to the defendant is duly served and service of summons is completed as per the regulations. The defendants had filed the vakalath on 04.08.2014. The defendants after filing the vakalath had neither represented the matter nor filed written statement. After sufficient opportunity granted to the defendants they have not filed written statement and hence the chance of filing written statement for the defendants was closed on 15.06.2016.

The evidence on the side of the applicant bank consists of the proof affidavit of its Chief Manager, AW1 and Exhibits A1 to A45 is marked on the side of applicant and closed their side of evidence.

Heard arguments of the applicant bank and perused the records of the case. The following points arise for my consideration:

(i) Whether the applicant is entitled for the reliefs prayed for in the OA?

(ii) What order?

My findings on the above points are as follows:- Point No.(i):

In the affirmative

Point No.(ii):

As per final order.

Reasons:-

The evidence of the applicant bank by way of proof affidavit of Chief Manager AW1 reiterates the facts pleaded in the OA and the affidavit is corroborated by the above referred Exhibits A1 to A45 which clearly establishes the case of the applicant bank to allow the present OA. Even otherwise the whole case of the applicant bank is based on the documentary evidence and the witness has duly proved all the documents exhibited by him. It is quite evident from the documents placed on record by the applicant bank that defendants have availed the financial assistance from the respondent bank and have failed to repay the dues of the respondent bank. Added to this, the defendants did not contest the matter as they admitted the entire case of the applicant as sought for in the OA. In view of the above, the

present OA is to be allowed with costs as sought by the applicant bank.

Having regard to the amount advanced, the interest applied, the conduct and operations in the account and the default committed, I am of the view that the applicant bank is entitled to get a final order on the following lines:-

ORDER

(a) The OA is allowed with costs.

(b) The defendants are jointly and severally directed to pay a sum of Rs.30,02,746.50 (Rupees Thirty Lakhs Two Thousand Seven Hundred Forty Six and paise Fifty only) together with future interest compounded monthly on sum of Rs.29,42,430.50 [Rs.30,02,746.50 - Penal interest of Rs.60,316/-] @17% per annum from 01.03.2014 till realization and also its costs from the defendants;

(c) In the event of failure of the defendants to pay the OA claim amount, the bank is at liberty to sell the OA ‘A’ schedule and ‘B’ Schedule properties of the defendants and the sale proceeds be appropriated towards the OA claim amount as required under law; (d) In the event of non-realization of the OA claim amount despite the sale of the mortgaged properties referred above, the bank is at liberty to proceed against the other properties of the defendant, as required under law; (e) Schedule property shown in the OA shall become part and parcel of the final order of the OA and Recovery Certificate of present OA; (f) The applicant bank shall file memo of costs within ten days from the date of this final order; (g) Recovery Certificate shall be drawn up and issued to the Recovery Officer in terms of the final order.

The Registry is directed to communicate copy of the order to the parties concerned by speed post or registered post with AD. [Dictated to the steno, transcribed by her, corrected by me and then pronounced in the open court on this the 04th day of August, 2018]

(S.V.GOWRAMMA) Presiding Officer

A P P E N D I X Witness for Applicant:

AW1: Mr. Kumara Swamy, Chief Manager of the applicant bank.

Witness for Defendant(s): Nil

[Exhibits on the part of the applicant

Ext.No Date Particulars of documents A1 07.03.2011 Application submitted by the 1st defendant A2 31.03.2011 Sanction Memorandum A3 31.03.2011 Demand Promissory note for Rs.25Lakhs executed by the 1st defendant in favour of the applicant bank A4 31.03.2011 Common Hypothecation agreement executed by the 1st defendant in favour of the applicant bank A5 31.03.2011 Guarantee covering letter executed by the 1st defendant in favour of the applicant bank A6 31.03.2011 Guarantee Agreement executed by the 1st defendant in favour of the applicant bank A7 31.03.2011 Guarantee Covering letter executed by the 2nd defendant in favour of the applicant bank A8 31.03.2011 Guarantee Agreement executed by the 2nd defendant in favour of the applicant bank A9 31.03.2011 Guarantee covering letter executed by the 3rd defendant in favour of the applicant bank A10 31.03.2011 Guarantee Agreement executed by the 3rd defendant in favour of the applicant bank A11 31.03.2011 Letter of Proprietorship executed by the 1st defendant in favour of the applicant bank A12 31.03.2011 Request for overdraft facility submitted by the 1st defendant to the applicant bank requesting to grant overdraft facility A13 31.03.2011 Certificate of loan papers obtained A14 31.03.2011 Letter of undertaking A15 31.03.2011 Letter evidencing execution of equitable mortgage by deposit of title deeds A16 - Schedule A to the letter evidencing creation of equitable mortgage by deposit of title deeds A17 - Schedule B to the letter evidencing creation of equitable mortgage by deposit of title deeds A18 12.01.2011 Sale deed No.70 of 2011 of the Vithura Sub Registry Office, Thiruvananthapuram A19 14.02.2011 Lad Tax Receipt for having paid the land tax for the property equitable mortgaged to the applicant bank A20 17.02.2011 Possession Certificate issued to the 3rd defendant by the Village Officer, Thalicode A21 17.02.2011 Location Certificate A22 - Sketch of the properties equitably mortgaged issued by the Village office, Thalicode A23 21.01.2011 Encumbrance certificate in respect of the property equitably mortgaged to the applicant bank A24 09.11.2011 Link letter in respect of enhancement of credit facilities executed by the 1st defendant in favour of the applicant bank A25 09.11.2011 Supplemental agreement A26 09.11.2011 Demand Promissory note executed by the 1st defendant in favour of the applicant bank A27 31.01.2012 Request Letter of the 1st defendant A28 31.01.2012 Promissory note executed by the 1st defendant A29 30.05.2012 Request letter of the 1st defendant A30 31.05.2012 Promissory note executed by the 1st defendant A31 05.09.2012 Link letter executed by the 1st defendant A32 05.09.2012 Demand promissory note executed by the 1st defendant A33 05.09.2012 Supplemental agreement executed by the defendant A34 03.04.2012 Letter sent by the 1st defendant A35 08.04.2013 Letter of communication received by the bank from the 1st defendant A36 31.01.2012 Acknowledgement of Debt and Security executed by the 1st defendant A37 25.01.2013 Letter issued by the applicant to the 1st defendant A38 24.04.2013 Letter issued by the applicant to the 1st defendant A39 17.08.2013 Recall letter issued by the applicant bank A40 06.09.2013 Notice issued under Section

13(2)SARFAESI Act by the applicant bank to the defendants A41 23.12.2013 Notice issued for taking possession of the property u/s 13(4) of the SARFAESI Act

A42 - The statement of account of the 1st defendant – the A/c No.2607285000069 for the period from 31.03.2011 to 28.02.2014. A43 - Statement of stock summary furnished by the 1st defendant to the applicant bank as on 28.02.2013 A44 - Statement of stock summary furnished by the 1st defendant to the applicant bank as on 31.03.2013 A45 - Statement showing the rate of interest applicable

Defendant’s Exhibits – Nil

(PRESIDING OFFICER)

A SCHEDULE Item No.1 District

:

Thiruvananthapuram Taluk

:

Nedumangad Village

:

Thalicode Survey No.

:

734/1-2-2, 734/1 Extent

:

3.14 Ares and 2.42

Ares (5.56 Ares) DESCRIPTION OF PROPERTY The property consisting of 3.14 Ares in Re.Sy.No.734/1-2- 2 and 2.42 Ares in Re.Sy.734/1 of Thalicode Village along with appurtenants thereto having obtained by the 3rd defendant as per Sale Deed No.70/2011 dated 12.01.2011 of Vithura Sub Registry Office, Thiruvananthapuram executed in favour of Smt. Syamaladevi by Sri. Mubaraq and his wife Smt.Bushra.

BOUNDARIES

North : Thadam

South : Property of Smt.Suhara Beevi East : Property of Sri.Hakkim

West : Property of Sri. Nazarudeen

B SCHEDULE

All the movables and stock in trade hypothecated in favour of the applicant bank as per Annexures-4, 25, 33 common hypothecation agreement and supplemental agreements and more particularly described in Annexures – 43,44, and 45 statement furnished by the first defendants to the applicant.

[PRESIDING OFFICER]

IN THE DEBTS RECOVERY TRIBUNAL-II, KERALA AT ERNAKULAM Dated this the 01st day of August, 2018 Present: S.V.Gowramma, B.A., LL.B

T.A. 888/2016 [OA.No.228 / 2014]

Between M/s Canara Bank, Vazhuthacaud Branch, …Applicant

And M/s Chaithanya Associates, & 2 others.

…Defendants

FINAL ORDER